On any loan in which you are putting less than 20% down, you will need to pay mortgage insurance. Mortgage insurance is meant to lower the risk to the lender of giving a loan to you, so that you can qualify for a loan that you might not otherwise be able to get. The mortgage insurance will be included in your monthly payment, your costs at closing, or to your loan amount.

For conventional loans, your mortgage insurance will be setup with a private company. Private mortgage insurance (PMI) rates are determined by down payment amount and credit score. Most PMI is paid monthly, though it can be built into your loan amount by taking a higher interest rate. Once you have 20% or more equity in a property, your PMI can be cancelled.

For Federal Housing Administration (FHA) loans, mortgage insurance premiums are paid to the FHA. FHA mortgage insurance is required for all FHA loans, regardless of down payment, and includes both an upfront cost, paid as part of your closing costs, as well as a monthly cost, included in your monthly payment. The upfront cost can be rolled into the mortgage, though it would increase the loan amount and therefore increase overall costs

US Department of Agriculture (USDA) loans are much like FHA, with an upfront cost as well as a monthly cost. The upfront cost can be rolled into the mortgage, though it would increase the loan amount and therefore increase overall costs.

Department of Veterans’ Affairs (VA) loans have the VA guarantee which takes the place of mortgage insurance. There is no monthly mortgage insurance premium, but rather an upfront “funding fee” which is based on the type of military service, the down payment amount, any disability status, purchase vs refinance and whether or not you are a first time homebuyer. This fee can be rolled into the mortgage, though it would increase the loan amount and therefore increase overall costs.

Have further questions regarding this topic? Give me a call, I’m happy to help!

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